Who doesn’t want to fly across the Atlantic in half the time?
This is the question that got me hooked on Boom Supersonic. Although I was initially skeptical—didn’t the Concorde fail almost 20 years ago?—I decided to put aside my preconceptions and do what I always do when learning something new: approach it with a beginner’s mind:
“In the beginner's mind there are many possibilities, but in the expert's there are few.” – Suzuki
Credit: Boom Supersonic
Initially, I began studying Boom’s founder Blake Scholl. Willing a company out of nothing, especially one facing so many obvious headwinds, isn’t easy. I began watching videos and interviews with Scholl and talking to people who knew him. My impressions and feedback were overwhelmingly positive, so I proceeded to investigate the merits of Boom itself. Boom is an aircraft manufacturer aiming to build the first supersonic airliner since Concorde’s retirement in 2003 (like the Concorde, it’ll fly at Mach 1.7, almost twice the speed of sound). The expected range of 4,250 nautical miles will be enough to fly non-stop from NY to London. Routes over the Pacific include one stop for refueling, but the entire travel time is still expected to be cut by at least 40% (Tokyo to Seattle in 4:30h rather than 8:30h currently). Boom will fly its 1/3-scale demonstrator aircraft XB-1 this year or early 2022, and its airliner Overture in 2025, with commercial flights starting in 2029.
Airlines will line up to buy Overture
Earlier this month, United Airlines announced it’s buying 15 Overtures, with an option for 35 more. At the $200m list price, the 15 airplanes alone are a $3 billion order—not bad for a product that hasn’t flown yet!
Credit: Boom Supersonic
Here’s why United is so eager to be first in line: the first mover will be in prime position to leap ahead in profitability.
Boom is designing Overture to have similar operating costs than subsonic flights on a per-seat mile basis. Initial ticket prices will probably command a premium owing to scarcity and novelty, but over time will cost the same as existing business class tickets ($7,700 from San Francisco to Tokyo or $5,500 from New York to London).
Once that happens, nobody will want to pay the same price for a flight that takes twice as long. Most of the profit pool in those routes is in business class, and every business class flyer will flock to United’s supersonic flight, gutting the profitability of every other subsonic route.
Once other airlines figure this out, the dominos will start to fall and everyone with similar routes will have no choice but to fly Overture as well.
Boeing and Airbus can’t compete This sounds crazy, until you realize that Overture is expected to fly in 2029, while Boeing and Airbus won’t have a competing aircraft until 2040 at the earliest. Boeing and Airbus are slow, lumbering giants, working off decades-old designs, dealing with order cancellations and legacy supply chains. Yes, I do expect them to build competitive products (OK, I actually don’t, but let’s assume they will). By the time they do so, Overture will be miles ahead, its aircraft having been in service for several years. And remember, Overture is Boom’s first airliner. The company’s mission is quite expansive: “Make the world dramatically more accessible by building travel that is faster, less expensive and more convenient.” We can expect more products in the future. We’ve known how to build a supersonic airliner for decades. Why haven’t Boeing and Airbus already built one? Lack of ambition, institutional constraints, not wanting to upset their current supply chain and airline customers—constraints that a new company like Boom does not have.
When most people hear about Boom, their first reaction is, “But what about the sonic boom?” Yes, the Concorde was very loud and inefficient, because it used afterburners and was designed with slide rules. Boom is taking advantage of high-performance computing on AWS. This allows the team to iterate and perfect the design before testing in wind tunnels, saving time and money.
Overture will use much more efficient turbofans and renewable fuels (fuel created from captured carbon). This will make it the world’s first zero-carbon emission airliner.
On takeoff and landing, Overture won’t be louder than existing subsonic aircraft, and once it reaches water, it’ll accelerate to supersonic speeds. The boom won’t be audible to residents near the coast, and there are over 500 routes where Overture can fly mostly over water.
Credit: Boom Supersonic
There is little technological risk in bringing Overture to market. The challenges are mostly engineering, organizational, and regulatory, and on each front, Scholl has assembled a spectacular team of engineers from SpaceX, Scaled Composites, executives from Boeing, Gulfstream, and industry advisors.
What could go right?
At Heller House, we have over a decade of experience doing due diligence and investing in public companies. In public markets, there is usually a lot of information to rely on. The default mindset of public market managers is skepticism. Indeed, some would say that there is often too much skepticism for the money manager’s own good.
We’ve been invested in Square for years and wrote about it here.
Frequently, managers engineer themselves out of great opportunities because of noise disguised as data. Examples of this include, “What if the Fed raises interest rates?” or “There is too much insider selling.”
Most public managers have short lockups in their funds, ranging from one day to a year; rarely more. How is it possible to align the psychology and incentives to invest in something for a decade or more, when you’re being judged by the ups and downs of your portfolio on a short-term basis? The answer is: it isn’t. At Heller House, we have a one-year lockup initially and quarterly liquidity thereafter in our public markets fund, but we carefully curate our investor base to ensure this long-term alignment.
Venture capitalists, in contrast, operate in a different universe. They are looking at ideas going from zero to one: from nonexistence to existence. Their funds typically have 10-year lockups with options to extend. At that timescale, whether the Fed is going to raise or cut interest rates is irrelevant: the world can change many times over in ten years. In the intensely competitive sport of identifying the next 100- or 1,000-bagger, VCs ask not what could go wrong, but what could go right.
And for Boom, a lot could go right. Consider that Boeing and Airbus deliver a combined 1,500 planes every year. Let’s say Boom grows to deliver 7 percent of that amount, or 100 planes per year. At $200 million each, that’s $20 billion in revenues. Using Boeing’s median 5.6 percent net margin over the past decade, that’s $1.1 billion in profits. If successful, Boom could easily be worth between $20 and 40 billion. That’s a great IRR for a company currently valued at $1 billion, even if you look out 15 years.
Our first private investment
Boom Supersonic was Heller House’s first private investment, but it won’t be our last. We are eager to partner with exceptional teams tackling large markets with superior products and services. We are excited to hitch a ride alongside Scholl and his team, and look forward to flying much faster in the near future.